Turnover of Post-Petition Garnishment Starts When Case Is Filed.

Once a debtor files for bankruptcy, all wages garnishments must cease. In the recent case of In re Williams, a case from the Bankruptcy Court in Kansas reported on May 15, 2012, the creditor had an obligation to refund post-petition wages even though it did not originally get notice of the bankruptcy filing.

In this case the debtor filed bankruptcy on June 23, 2011, but did not list the creditor who had been garnishing his wages before he filed. On October 5, 2011, he finally notified the creditor of his bankruptcy filing and the next day the wage garnishment stopped. The creditor refused to return the wages garnished for the period between June 23, 2011 and October 5, 2011, claiming that it only needed to stop the garnishment once it leaned of the bankruptcy case. The debtor then filed a turnover motion with the bankruptcy court seeking the return of his wages for this period of time.

The Bankruptcy Court granted the debtor’s motion. The Court said that “absence of notice to the creditor that the bankruptcy has been filed is not a defense to the obligation to obligation to turnover. Notice to creditors is not an element of the imposition of the stay. The stay arises automatically upon the filing of the petition for relief, not upon notice to creditors of the filing. A creditor who has initiated collection efforts without knowledge of a bankruptcy petition has an affirmative duty to restore the status quo without the debtor having to seek relief from the Bankruptcy Court. Lack of proper notice protects a creditor from the imposition of a penalty, but not from the turnover obligation."

Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.